Canadian Dollar Forecast: USD/CAD Rally to Monthly High

Canadian Dollar, USD/CAD Talking Points:

• USD/CAD has jumped up to a fresh monthly high today.
• The pair remains one of the more attractive major FX pairs for USD-strength, as followed over the past month and change.
• Last week saw rate cuts from both the Fed and BoC, but USD/CAD held a higher-low by one-tenth of a pip, and that higher-low has allowed for a strong rally up to a key resistance zone.
• I’ve been tracking this setup closely in webinars, and you’re welcome to join the next. Click here to register.

USD/CAD is at a fresh monthly high this morning and that extends the sequence following last week’s hold of a higher-low on Fed and BoC day.

While both central banks cut rates, the response in the USD so far has been strength as the Fed was slightly less dovish than what markets had priced in. Markets were looking for 50-75 bps in cuts next year and the Fed instead indicated that they’re looking at 25 bps; so even though the bank cut rates and highlighted another 50 bps in cuts for this year, USD shorts have been squeezed with the US dollar pushing back up to an area of resistance at prior support.

As followed for most of Q3, USD/CAD remains one of the more attractive venues for USD-strength and that’s something that can even be dialed back to last quarter, as USD/CAD was setting higher-lows even as DXY was setting fresh lows.

USD/CAD built an ascending triangle formation as those higher-lows went along with horizontal resistance at 1.3750 – and that formation gave way in late-July. It’s what happened after that makes matters more interesting, however, as that prior resistance of 1.3750 became support with bulls holding successively higher-lows, even into last week’s pullback around the Fed and BoC rate decisions.

As tracked in the webinar on the Tuesday before, the big test was whether buyers could hold a higher-low, illustrating a degree of bullish anticipation. And that’s precisely what happened, with last Wednesday’s low printing just one-tenth of one pip, aka a ‘pipette’ above the prior swing low. And as USD strength has come back in the aftermath of the Fed meeting, USD/CAD has shined with prices rallying up to resistance.

USD/CAD Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/CAD Bigger Picture

At this point there’s a few important USD markets testing key spots, such as EUR/USD and GBP/USD, not to mention USD/JPY. Whether the Dollar can continue to breakout will likely have something to do whether those majors markets can see greater forms of breakdowns or breakouts, but if we can see USD bulls continuing to push, USD/CAD remains situated in an attractive spot with the 1.4000 level lurking overhead as the next key zone of resistance potential.

Above that, it’s the 1.4151-1.4178 zone of resistance-turned-support and that’s also around the 50% mark of the earlier-year sell-off. If that comes into play at some point in Q4, that becomes a significant decision point for the pair.

On a shorter-term basis, the 23.6% Fibonacci retracement of that same major move remains of interest for possible support and that plots at 1.3638.

USD/CAD Weekly Price Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Strategist